Tight Budgets Shape Mainframe Plans Throughout Americas

Rhea-AI Summary

The ISG Provider Lens™ report highlights the increasing interest in mainframe modernization among enterprises in the Americas due to cost-consciousness in 2023. Mainframe software maintenance licenses are a significant expense that many firms aim to reduce or eliminate. Strategies like rehosting software in the cloud, rewriting legacy applications, and outsourcing operations are popular to cut costs while retaining legacy code. Mainframe application modernization is growing in the U.S. and Brazil, driven by cost considerations and regulatory compliance. Generative AI is gaining traction for automating mainframe modernization tasks.

Insights

Market Research Analyst

Enterprises' shift towards mainframe modernization, as highlighted by the ISG Provider Lens™ report, indicates a strategic pivot that can influence market dynamics. By migrating to cloud services or outsourcing, companies aim to curb expenses associated with maintaining legacy systems. This trend reflects an operational efficiency drive, which can lead to reduced operational costs and potentially higher profit margins. The implication for investors is that companies engaging in such modernization may present a more favorable long-term cost structure. However, the initial investment in modernization and potential disruption during the transition phase could impact short-term financials.

Furthermore, the report's indication of a growing market for mainframe-as-a-service (MFaaS) and outsourced operations suggests an expansion in the IT services sector. This could signal investment opportunities in companies that provide these services. The interest in generative AI for automating documentation and explaining business rules also points to an evolving landscape where technology companies that invest in such AI capabilities could gain a competitive edge. However, investors should be cautious, as the long-term efficacy and integration of GenAI in mainframe modernization are yet to be fully realized.

Financial Analyst

The focus on cost-cutting through mainframe modernization, as reported by ISG, has direct financial implications for the enterprises involved. By reducing the expenses on software maintenance licenses, companies could improve their earnings before interest, taxes, depreciation and amortization (EBITDA) margins. This is a critical metric that investors use to assess a company's operating performance. The move to cloud computing may also lead to variable costs replacing fixed costs, offering more financial flexibility to respond to market demands.

For stakeholders in the IT sector, particularly in cloud services and mainframe modernization, this trend presents potential revenue growth. However, it's important to monitor the competitive landscape, as increased demand could lead to market saturation and pressure on service pricing. Additionally, the report's mention of regulatory compliance as a driver for modernization in the U.S. and the growth of modernization services in Brazil's banking sector indicates regional market nuances that require tailored financial strategies.

Sustainability Consultant

The ISG report's observation that organizations are decommissioning on-premises data centers to meet sustainability goals introduces an environmental angle to the financial narrative. Moving to cloud-based solutions can reduce the carbon footprint of data center operations, which is increasingly important to stakeholders concerned with corporate social responsibility (CSR). Companies that effectively communicate their sustainability efforts through such modernization initiatives may see enhanced brand value and customer loyalty.

Investors are paying more attention to environmental, social and governance (ESG) factors and companies that lead in sustainability might attract more investment. However, the transition to cloud services must be managed carefully to ensure that it does not lead to unintended environmental impacts, such as increased energy consumption at cloud data centers. This balance between financial benefits and environmental responsibility is a nuanced aspect that companies must navigate as part of their modernization strategies.

More enterprises chip away at high costs by modernizing applications, moving to cloud or outsourcing legacy software operations, ISG Provider Lens™ report says

STAMFORD, Conn.--(BUSINESS WIRE)-- As macroeconomic conditions made enterprises in the Americas more cost-conscious in 2023, interest in mainframe modernization increased significantly, according to a new research report published today by Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.

The 2024 ISG Provider Lens™ Mainframe — Services and Solutions report for the Americas finds that while not all organizations are moving away from legacy systems, mainframe software maintenance licenses represent a major expense that a growing number of firms want to reduce or eliminate.

“Despite ongoing innovation in enterprise computing, mainframes are stable and reliable, so many companies remain committed to the technology,” said John Schick, Americas leader, Mainframe Modernization and Optimization, for ISG. “Mainframe optimization services and outsourcing help to make that possible.”

Most IT organizations in the Americas that need to cut costs are quickly rehosting their mainframe software in the cloud, the report says. Others are rewriting legacy applications in modern programming languages or re-engineering them, both of which ensure like-for-like behavior and performance that can be validated through automated testing.

Strategies to reduce costs while retaining legacy code remain popular, ISG says. The market for outsourced mainframe operations and mainframe-as-a-service (MFaaS) continues to grow. More organizations are decommissioning on-premises data centers to fulfill sustainability goals. MFaaS provides a cloud-like, pay-per-use experience on a private cloud, while mainframe operations engagements let clients retain hardware and software ownership as needed.

Mainframe application modernization is accelerating in the U.S., driven more by cost considerations and the need for regulatory compliance than by innovation, the report says. In Brazil, the second-largest IBM mainframe market after the U.S., application modernization services are expected to keep growing in 2024. The country’s largest banks have started modernization and migration initiatives, attracting interest from global cloud giants.

Enterprises grew more interested in generative AI’s potential to further automate mainframe modernization in 2023, ISG says. Though today’s GenAI platforms cannot replace tools that rewrite or re-engineer mainframe applications, there have been demonstrated use cases involving tasks such as explaining business rules and summarizing logic for better documentation.

“Excitement about GenAI’s future is increasing interest in AI solutions that already make application modernization faster and more efficient,” said Jan Erik Aase, partner and global leader, ISG Provider Lens Research.

The report also explores other mainframe trends in the Americas, including the rising interest in DevOps methodologies for mainframe optimization and a wave of acquisitions in the rapidly growing market for application modernization software.

For more insights into the biggest mainframe challenges enterprises face, including local skills shortages and the high cost of software integration, along with ISG’s advice for addressing them, see the ISG Provider Lens™ Focal Points briefing here.

The 2024 ISG Provider Lens™ Mainframe — Services and Solutions report for the Americas evaluates the capabilities of 57 providers across six quadrants: Mainframe Optimization Services, Application Modernization Services, U.S., Application Modernization Services, Brazil, Mainframe as a Service (MFaaS), Mainframe Operations and Mainframe Application Modernization Software.

The report names DXC Technology and Wipro as Leaders in five quadrants each. It names Capgemini, Ensono, Infosys, Kyndryl and TCS as Leaders in three quadrants each. Accenture and Cognizant are named as Leaders in two quadrants each. Astadia (Amdocs), Atos, Avanade (Asysco), AWS, GFT, Google, HCLTech, Heirloom Computing, Hexaware, LTIMindtree, mLogica, Mphasis, OpenText, TmaxSoft and TSRI are named as Leaders in one quadrant each.

In addition, FNTS is named as a Rising Star — a company with a “promising portfolio” and “high future potential” by ISG’s definition — in two quadrants. Kyndryl and NTT DATA are named as Rising Stars in one quadrant each.

Customized versions of the report are available from AWS, AveriSource, Base100, FNTS, Heirloom Computing, Hexaware, LzLabs, mLogica, Recovery Point, and TSRI.

In the area of customer experience, HCLTech is named the global ISG CX Star Performer for 2024 among mainframe services and solutions providers. HCLTech earned the highest customer satisfaction scores in ISG's Voice of the Customer survey, which is part of the ISG Star of Excellence™ program, the premier quality recognition for the technology and business services industry.

The 2024 ISG Provider Lens™ Mainframe — Services and Solutions report for the Americas is available to subscribers or for one-time purchase on this webpage.

About ISG Provider Lens™ Research

The ISG Provider Lens™ Quadrant research series is the only service provider evaluation of its kind to combine empirical, data-driven research and market analysis with the real-world experience and observations of ISG's global advisory team. Enterprises will find a wealth of detailed data and market analysis to help guide their selection of appropriate sourcing partners, while ISG advisors use the reports to validate their own market knowledge and make recommendations to ISG's enterprise clients. The research currently covers providers offering their services globally, across Europe, as well as in the U.S., Canada, Brazil, the U.K., France, Benelux, Germany, Switzerland, the Nordics, Australia and Singapore/Malaysia, with additional markets to be added in the future. For more information about ISG Provider Lens research, please visit this webpage.

A companion research series, the ISG Provider Lens Archetype reports, offer a first-of-its-kind evaluation of providers from the perspective of specific buyer types.

About ISG

ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 900 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including AI and automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,600 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240410657983/en/

Press:

Will Thoretz, ISG

+1 203 517 3119

will.thoretz@isg-one.com

Julianna Sheridan, Matter Communications for ISG

+1 978-518-4520

isg@matternow.com

Source: Information Services Group, Inc.

FAQ

What does the ISG Provider Lens™ report highlight about enterprises in the Americas in 2023?

The report highlights the increasing interest in mainframe modernization due to cost-consciousness.

How are enterprises aiming to reduce or eliminate mainframe software maintenance expenses?

Enterprises are adopting strategies like rehosting software in the cloud, rewriting legacy applications, and outsourcing operations.

What is driving mainframe application modernization in the U.S. and Brazil?

Mainframe application modernization is driven by cost considerations and regulatory compliance in the U.S. and Brazil.

What role does generative AI play in mainframe modernization according to the report?

Generative AI is gaining interest for automating tasks like explaining business rules and summarizing logic in mainframe modernization.

Which country is the second-largest IBM mainframe market after the U.S.?

Brazil is the second-largest IBM mainframe market after the U.S.